The Return of the Bonus

The revitalization of the economy in general, and the high-tech sector in particular, coupled with the improved performance of the banks in recent years, has seen a return to center stage of the cash bonus, as a means of of rewarding workers. Even organizations at which such a practice was unheard of, such as at food manufacturing plants (Osem, for example), are beginning to recognize the value of the bonus as a means of keeping workers on the job.

As companies recover economically, and the demand for workers grows, those that want to keep their employees from leaving in favor of the competition will have to consider remunerating their workers for company achievements or increased annual profits. Senior executives will have to formulate incentive packages for managers and workers that are designed to promote the realization of the company's long and short-term goals.

Ze'ev Ben-Zvi, the owner of Ben-Zvi Systems, Executive Benefit Specialists, a wage and fringe-benefit policy consulting firm, estimates that high-tech companies (but not startups), banks and industrial companies that have started to pay bonus packages calculate them on the basis of 5-6 percent of their net profits. Annual bonuses range from half a month's salary to three months' salary (Israel Discount Bank executives recently awarded themselves bonuses of 3.5 months' salary), although the average bonus at most organizations is 75-100 percent of one month's wages.

In the banking sector alone, annual bonuses amount to over NIS 200 million. There is no estimate of the total sum paid in bonuses throughout the economy, but it is probably close to NIS 500 million.

Ben-Zvi, a staunch advocate of bonuses as an employee incentive, says that bonuses are currently awarded for short-term successes, such as the completion of a recovery program, but also for the achievement of strategic (long-term) goals. Such bonuses are awarded, for the most part, to senior executives.

According to Ben-Zvi's philosophy, bonuses are not effective if they are distributed after the fact, at the end of a calendar year or after the publication of annual financial reports - in such cases, he says, a worker has no way of knowing, during the course of the year, if it is worthwhile for him to make an effort to earn the bonus.

"Bonuses are effective if the senior executive informs employees in advance of the work plan for the coming year," Ben-Zvi says. "In such a manner, each employee knows how much effort he has to make in order to earn a bonus."

Encouraging output

"A bonus cannot be distributed as a uniform sum to all levels of employees," Ben-Zvi says, "because this fosters mediocrity, encouraging weaker workers and not properly recognizing those who excel."

Instead, he says, bonuses should be based on output and achievements.

Tali Atzmon, whose company conducts wage and bonus surveys among high-tech firms, says that during the high-tech crisis years (2001-2003), bonuses were negligible because profits were down and no budgets were allocated for such rewards - except in international companies that have operations in Israel and that continued their bonus policy even during the slump years.

"Now," Atzmon says, "with the expansion of activities in the sector, thanks to increased exports and breakthroughs into new markets, bonus budgets have grown rapidly, to the point where 73 percent of companies are now promising employees achievement or end-of-year bonuses based on company profits."

Atzmon has found that although startups do not usually offer bonuses, salaries are an average of 5 percent more than in established companies, bringing total employee earnings almost on par with companies that pay bonuses.

Incentive to transfer

For her part, Orit Naor, director general of CPS, a veteran screening and placement firm in the high-tech sector, doubts the value of bonuses to employers. In the United States, she says, bonuses are perceived as special, and promote employee loyalty, whereas in Israel, the opposite is the case.

"[Israeli] employees who get bonuses feel their worth has increased, and within a few months, they start looking for work at another company, seeking more senior positions," Naor says.

Naor explains that companies that pay bonuses for overtime hours are making a mistake, and that bonuses should be linked to the achievements, such as turning dissatisfied customers into satisfied customers within a specific time frame, for example. She also advises companies to allocate funding for training sessions in which employees are imbued with a sense of partnership and responsibility in realizing the company's vision and goals.

Not only money

"Employees expect a link between their contribution to the company and the compensation they receive," says Edna Pasher, a management consultant, adding that this does not always have to be in monetary terms, and can be words of appreciation from a project manager for a job well done.

According to Pasher, studies have found that bonuses actually rank fifth in an employee's order of priorities. Appreciation for work is seen as most important, followed by a sense of involvement, understanding from supervisors, and job security.

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